Marketing Charts reports on research from Bredin Business Information that Small and Medium Businesses prefer to use web technologies for promoting themselves, but prefer traditional methods for getting information about other businesses. 

Based on Bredin’s survey, SMBs expect to generally decrease their use of offline marketing tactics, with increases in PR and telemarketing. The increase in PR is consistent with the business owner’s preference for learning about other businesses from newspaper and magazine articles. However, they expect to increase their use of telemarketing even while they report that they don’t like getting phone calls. 

Another inconsistency is that SMB owners like to get direct mail and postcards, but they expect to use that technique less in 2009. 

Perhaps SMB marketers should re-evaluate wether they are going to zig or zag.

If you’ve been following the grim news about apparel and retail layoffs, you may have noticed that the layoff news is always about major retailers. Is it because mass layoffs data is the easiest to collect? Or are the layoffs concentrated among the majors?

One clue comes from a survey from ILSR, the Institute for  Local Self-Reliance. Their survey indicates that holiday sales at independent retailers declined slightly less than at a selection of major retailers, with a 5% decline among independents versus 9.8% for all retailers.

 They also reported that cities with “Buy Local” program saw smaller declines among independents than in cities without such programs. 

 

The survey of 1,142 independent retailers in a wide range categories (books, toys, clothing, etc.) and across all 50 states found that holiday sales at independent stores declined an average of 5.0% from the same time period in 2007. That compares favorably to most competing chains, including Barnes & Noble (- 7.7%), Best Buy (-6.5%), Borders (-14.0%), JC Penney (-8.1%), Macy’s (-7.5%), The Gap (-14.0%), and Williams-Sonoma (-24.2%).

This week, the Commerce Department reported that December retail sales overall were down a record 9.8% over December 2007.

 

The survey also found that independent retailers in cities with active “Buy Local” campaigns reported much stronger holiday sales than those in cities without such campaigns. “Buy Local” or “Local First” campaigns have been launched in dozens of cities and towns over the last few years. Independent retailers in these cities reported an average drop in sales of 3.2%, compared to a steeper decline of 5.6% for those in cities without an active Buy Local initiative.

Read the full press release at the ILSR website. 

Fashion and beauty magazines have played a critical role in the historic methods of fashion marketing, and you might expect that to change as consumers embrace the Internet. But, are consumers abandoning fashion magazines in favor of the web?

While we don’t have enough data specifically on fashion magazines, we do have a report on 10 years of general magazine circulation from the Magazine Publishers of America. Not surprisingly, the report concludes that “Magazines hit on all cylinders”, “Magazines ring the register” and “Magazines cause traffic jams.” Clearly, at least to the wagazine industry trade association, your business can’t succeed without coverage in a magazine, whatever your business is. 

The report demonstrates strong US magazine sales between 1997 and 2007, in the range of  350M to 380M:

So magazine sales took a strong hit after the dotcom bust, but recovered well after that. However, this graph does not show the current economic crisis, which probably has a decline similar to  1999-2003. More importantly, the graph does not adjust for population growth. Here is a graph of the magazine sales divided by US population:

This view shows a moderate decline of 10%,  although we should probably expect that the data for 2008 and 2009, with a worsening economy and a growing population, would show a more substantial decline. Considering that 525 magazines failed in 2008 and only 335 launched  that decline is virtually certain. The WSJ reported that for the second half of 2008 single copy magazine sales were down 11%.  What is more interesting is that there was no improvement in the ratio during the economic boom times from 2002 to 2007. 

Since the decline in the Sales/Population ratio is only 10% it is hard to draw any strong conclusions, but the data does point to a decline in the influence in magazines, and if the same trend in the graphs occurs after the current recession, magazines will see another significant erosion of influence in the next few years. 

Our guess is that Magazines are going to have significantly reduced circulations over the next 5 years, paralleling the problems in the newspaper industry, but on a reduced scale. Magazines are more frivolously fun than newspapers, and for fashionistas looking for new trends, they are both engaging and easy to use. The major fashion magazines will have multi-million print circulations for years, but getting coverage in them won’t be mandatory for the success of a new apparel line. 

( If you are interested in hearing from an expert on magazines, and their publishing model, visit Mr. Magazine. Samir Husni’s blog is what we hope Retailing Together to be for the retail industry. )

The occasional encouraging sales reports that Retailing Together found on the trade show floors in Las Vegas has been confirmed in more detail by the real journalists.

The February 27 issue of California Apparel News ran several encouraging articles:

Better Results Than Expected in Las Vegas

… Some shows"notably the Off-Price Specialist Show and MRket " reported an uptick in traffic this season. …

MAGIC, WWDMAGIC Find Good Sales in Bad Times

The weak economy and new layout of the trade show had this husband-and-wife team forecasting sales would plummet 50 percent compared with their sales at MAGIC last February. However, by the last day of the most recent show, they said their initial forecast was proven wrong when their sales broke even. Better yet, they estimated they spread the word about Dead Threads to 30 percent more buyers than they had during the same show in the previous year.

Pool Trims Size, Gains New Business

… many vendors were pleasantly surprised by doing good business in a poor economy. Cody De Backer of Los Angeles–based label Grn Apple Tree estimated that his label’s sales increased 15 percent compared with the February 2008 show … He claimed that 60 percent of retailers visiting his booth wrote orders.

Retail Traffic Up at MRket

"The buyers coming into Vegas hadn’t bought much, so many of them left paper. It was an order-writing show," she said.

The show was 70 percent larger than the February 2008 inaugural show and 15 percent larger than the August 2008 show. 

Several of the articles also noted that vendors are  offering more immediates, a trend we also learned about from  WWIN and some retailers. 

Can we declare the recession over yet?

Brick and mortar retailers are nearly invisible online, according to a report from Internet-Engine.  Consumers overwhelmingly turn to online sources for information about  local business, but those local businesses either are not online at all or have poor websites that don’t show up in search results. Physical retailers have a share of search results that is lower than both online retailers and manufacturers, meaning that it is very difficult for consumers to find products sold in physical retailers, particularly independent retailers. 

Overall this result is not too surprising, since 56% of small businesses don’t even have a website. But, when 63% of consumers first turn to the web for information about local businesses, not having a well-promoted website is a marketing disaster. 

C’mon folks. It isn’t that hard. You get have a website for your store in about 10 minutes.

Retailer Daily writes today that Macy’s is cutting 7,000 jobs and expanding their My Macy’s programs. We think this is a sign of hope for independent retailers who capitalize on their unique strengths: while Macy’s is reducing staff, they are increasing the focus on the customer and local market customizations, long the domain of independent retailers.

Macy’s decision is a strong sign that local, independent retailers will  be in the best position to grow during recovery. The job cuts at Macy’s account for 4% of their staff, with 2,850 of the 7,000 cuts coming from their three headquarter offices.  About 40% of Macy’s executives are gone. At the same time, the company is expanding the number of employees who plan and merchandise stores at the local level. Macy’s is shifting planning from the national level to  local districts to better serve the individual markets. 

From the press release:

In order to concentrate more management talent in local markets and reduce "span of control," all Macy’s stores nationwide will be grouped into 69 geographic districts that will average 10-12 stores each, effective in the second quarter. Of those, 49 will be newly created districts. The other 20 districts (in the Midwest, Upper Midwest and Pacific Northwest) were created as pilots in spring 2008 and will remain in place.

The nationwide district structure will position Macy’s to develop and implement more effective strategies for identifying and serving specific consumer needs location by location. This is consistent with ongoing development of customer-centric business initiatives to leverage knowledge of customer segments to drive same-store sales, profitability and customer loyalty. Macy’s is working in partnership with consumer insight firm dunnhumbyUSA on these initiatives under an exclusive arrangement announced in 2008.

The last few months have seen a steady flow of layoff announcements from retailers, but few have announced shifting resources to local efforts. Too many retailers are hunkering down, rather than re-allocating. Macy’s thinks shifting staff from the national to local levels will position them to benefit from the recovery: 

These moves will prepare the company for accelerated growth once the economy recovers while reducing previously planned expenses by approximately $400 million per year beginning in 2010 (and $250 million in the partial year of 2009).

Macy’s maneuvers are a validation that independent retailers can emerge from the recession stronger than they were before. Consumers are coping with the recession by re-using and repairing instead of replacing, finding inexpensive recreational activities at home and in their communities, and thinking more about shopping in their local communities. When the economy recovers, consumers’ interest in quality, service, and locality will directly benefit the local independent retailers that are ready to receive the business that once went to big box retailers and malls.

If you’d like to do basic analysis on the apparel industry, the US business census has some very interesting statistics. The census is only conducted every five years and it takes a few years to get the data processed, so the latest data available is from 2002. Seven years later, there have been significant changes to the industry, but you can still use the data for order-of-magnitude analysis. Visit the 2002 census page for Apparel Manufacturing (NAICS 315) or the page for Clothing Stores (NAICS 4481) for all of the details.  Following are a few highlights. 

By number of manufacturers, the apparel industry is dominated by small companies. Of the 41,000 apparel manufacturers, 68% of them ( 28,000) have no employees " they are single person or family operations.  Of these non-employers, average revenues per manufacturer are about $31,000. That’s revenues, not earnings, so the majority of apparel manufacturers are not only small, they are likely part time or hobby projects. 

By contrast, manufacturers with employees, of which there are about 13,000, have average revenues ( actually the value of the shipped products ) of  $3M, and they have an average of 26 employees.  From other data, we can see that the distribution is skewed toward the largest companies: the top 180 companies account for 50% of the industry’s revenue. So while the number of companies favors the small firms, the bulk of revenues go to the largest firms. 

On the retail side, there are 91K clothing stores with 1.1M employees. 40% of the stores have no employees, significantly lower than the 62% of non-employers for the whole of the retail trade. 

As with the manufacturers, most of the revenue is earned by the largest retailers, with about half of revenue earned by the top 13% of retailers. 

While the census statistics are coarse and usually late, there are a few lessons to learn, and, since you’ve already paid for the data with your taxes, it is worth a look. Look for the 2007 data to be published in March of 2009.

Marketing Charts reports that while consumers prefer to use the Internet to find information about companies, only 44% of small business have a website.  Half of the consumers surveyed said search engines were the first place they turned to for information about local businesses and only 24% chose the Yellow Pages.

Furthermore, the trend of consumers moving to electronic sources for information is accelerating, as this chart from the Marketing Charts article reveals:

Our experience in the apparel, accessories and shoe markets is that far fewer than 44% of retailers have websites. Among stores that sell missy and plus sizes to older women, a rough estimate is less than 5% of retailers have websites. With consumers turning to the Internet for information about stores, an offline retailer can only attract new customers through random foot traffic and word of mouth.

See the article at Marketing Charts for all of the numbers.

A new paper from the MIT Sloan Research center demonstrates the advantages for businesses of having lower, consistent quality over higher, variable quality or early market share. 

For retailers, this means you should understand what are the most basic things that your customers consider a good experience and a good product and make sure those qualities are there every time. Don’t try to succeed by growing quickly, doing a lot of advertising, or trying a lot of gimmicks, even if some of the gimmicks are really good. Work on being good enough, but be good enough every time. 

You see this strategy in most of the major retailers. McDonald’s, Starbucks and Wal-mart all have had high-growth phases, but they didn’t start with high growth like the Internet companies of the 90s or a lot of high-profile fashion brands. Instead, they learned to do something very well and do it every time, in every store across the country. Then they grew. None of them have the highest quality products, but you can go to any of their stores at any time and know exactly what you will get. 

OK, you already knew this. This principle has been known in the business world for decades, and we didn’t need MIT to tell us again. The neat part of the paper is that they show the math behind the principle, and they show how the principle stacks up again other strategies. 

The paper, naturally, is not as accessible at the press release, talking about “strategic levers” and “positive feedbacks.” The gist of the paper is that  a lot of markets have positive feedbacks, where the successful companies gain advantages that allow them to get more successful more quickly than less successful companies. You know the principle as “the rich get richer.” 

This paper looks at the three ways companies can try to compete in these kinds of markets: 

1. Get a lot of market share really quickly. In the late 90s this was the popular Internet strategy called “first mover advantage.”  A company might do this through deep discounts, a lot of advertising, or opening a lot of stores. Lesson from the 90s: it doesn’t work.
2. Try to make the reasons that the rich get richer work more powerfully, for instance by using economies of scale to improve product quality, so the successful company can build a much better product than less successful companies. 
3. Work on making the products of more consistent quality rather than aiming for the highest quality. This is how McDonald’s became so successful. 

The paper’s conclusions are:

• In the very short run, increasing market share is the most successful strategy.
• In the long run, product quality overpowers the advantages of early market share. 
• In the long run, it is better to have a lower, consistent quality than an inconsistent quality that is, on average, higher.

So a lot of companies should look first at having a consistent, basically good customer experience rather than trying to grow quickly or trying a lot of wild ideas. 

There is one important caveat with the results from this paper: it is based on computer simulation and mathematics, not studying real people. It could be a lot of BS, but it does make a lot of sense when you look at the real world.